When Is Credit Card Interest Tax-Deductible? Quick and Easy Guide for Freelancers

Soo Lee, CPA
August 18, 2023
July 19, 2022
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Reviewed by
a tax professional
When Is Credit Card Interest Tax-Deductible? Quick and Easy Guide for Freelancers
Soo Lee, CPA
August 18, 2023
July 19, 2022
Icon check
Reviewed by
a tax professional

It’s no secret that most taxpayers are drowning in debt. Wouldn’t it be great if some of that debt could be used to lower your tax bill?

You can’t write off all your credit card debt. But if you’re an independent contractor, business owner, or side hustler, your credit card bills can actually be useful for once.

How? You can write off the interest you incur buying things for work.


Interest on personal purchases isn’t tax-deductible

Let’s start with the bad news. Any credit card interest earned from a personal purchase can’t be used as a tax write-off.

If you want the good news, skip straight to the next part, about how self-employed people can claim credit card interest write-offs! Otherwise, stick around for a short history lesson. 

The history behind credit card interest tax deductions

Before the Tax Reform Act of 1986, signed during Reagan’s second term, you could write off all your credit card interest.

What it was like to do your taxes in 1986

If you’re a real history buff, you can check out these instructions for filing a tax return back in 1986.

Notice the section on page 20 about writing off your credit card interest.

There’s also the intro note from the IRS Commissioner, about how things would be changing soon!

First paragraph of a note from the IRS Commissioner about 1986's tax reform act

Why the deduction for personal credit card interest went away

Congress got rid of the write-off for personal credit card interest in an attempt to get more Americans to save (instead of spending their money on big personal purchases).

Now, you can only claim credit card interest on your taxes if you incurred it buying something for your business.

That brings us to the good news.

Interest on business purchases is tax-deductible

Anytime you pay for something that’s a business write-off using a credit card, you can write off your credit card interest too.

That goes for:

  • 🛍️ Goods, like office supplies, plane tickets, client gifts, and productivity apps
  • 🤝 Services, like car washes and labor from contractors you pay with a credit card


Can you write off your credit card interest if you put business and personal purchases on the same card?

Yes, you can write off credit card interest for work-related purchases, even if you’re making them on a mostly-personal card. 

If you don’t pay off your card regularly, though, it’s easier to use a separate business credit card.

Let’s talk about why. (Spoiler alert: It’s compound interest!)

What the IRS says about mixed-use credit cards

The IRS is very clear that you can’t deduct credit card interest for personal purchases.

That being said, it doesn’t require a separate card if you’re trying to take a business interest deduction. (You’ll notice there’s absolutely nothing excluding this in IRS Publication 535, which deals with business expenses.)

Bottom line: Interest on your personal credit card can count as eligible business interest if it comes from your business purchases. 

How a business purchase on a mixed-use card would work

For example, let’s say you spent $20,000 on your credit card last year, and paid $1,200 in interest. $5,000 of your purchases were for work-related items — new laptop, office furniture, and software expenses.

That means 25% of your purchases were deductible expenses. So you can treat 25% of your credit card interest as a business expense too. That gets you a $300 interest deduction.

When you should use a business credit card

The example above is straightforward. But if you routinely have rolling balances and compound interest, things quickly slip into murky water.

With a credit card balance that doesn’t get paid off periodically, it’s exponentially harder to separate out the business portion of your interest.

If you tend to roll over your balance indefinitely, we recommend using a separate card for your business. It'll simplify your recordkeeping by a lot.

Why mixing business and personal purchases is generally fine

Mixing business and personal purchases on the same card isn’t always a bad idea. It doesn’t affect your ability to write off the work-related purchases you’re making.

Here are a couple of scenarios showing what a mixed-use card means for your taxes.

Putting business expenses on a mixed-use card you pay off

Say you’re using a credit card for the convenience (or the rewards!) and you’re able to pay off the balance every month.

You’re not paying any interest, so all you have to worry about is the cost of the items you’re buying.

If some of your credit card bill went to paying stuff you bought for work, go ahead and write off the cost of those purchases!

Claiming these write-offs is easy if you use Keeper. Our app can automatically scan the purchases on any card to create a separate list of business expenses.


Putting business expenses on a mixed-use card when you don’t pay it off

Sometimes, you can’t avoid mixing business and personal purchases on the same card – even if you don't make prompt payments on it.

Don’t worry: you can still write off the cost of any work-related purchases you put on that card.

Let’s say you’re a freelance photographer. You’re at the store to buy a new microwave for your kitchen. After putting it in your cart, you walk by the electronics display and realize they’re having an amazing sale on printers.

You’ve been meaning to get one so you can print photos for your clients. You don’t have a business card on you, and the deal's so good, the printers are about to run out. So you grab one and put it on your personal card. 

Good news: There’s nothing stopping you from writing off the cost of the printer. 

Writing off the printer itself will save you a lot more than writing off the interest on it. So don’t overthink it. If it’s convenient for you, go ahead and buy it with your personal card.

Now that you know what credit card interest deductions you can take, let’s talk about the how

How do you deduct credit card interest?

Taking a write-off for credit card interest is simple. Just claim it on your Schedule C, with your other business-related purchases.

Blank Schedule C with box 16, for "Interest," circled in blue

You’ll put it under “Box 16b: Interest.”

What other kind of interest is tax-deductible?

Besides credit card interest on business purchases, the IRS only lets you write off a few other types of interest.

Just remember: Any type of interest from personal expenses gets taken off your 1040 tax return or your Schedule A, not your Schedule C. You'll only use Schedule C for interest you incurred for business purposes.

Here are the other types of interest you can write off — and whether to claim each deduction.


Business loans

Where to write it off: Schedule C

Yup, credit cards aren’t the only way for businesses to:

  • Invest in their growth
  • Get a break on their taxes at the same time

If you get a business loan you can write off the interest on it.

Auto loans for cars you use for work

Where to write it off: Schedule C

If you drive for work, you can write off the interest on your car loan. You can also deduct the cost of the car itself, through vehicle depreciation. (To learn more, check out our guide on car depreciation for taxes.)

Note: This write-off is only for self-employed people who drive on the job. If you only use your car for personal purposes, then your auto loan interest isn’t a write-off.


Where to write it off: Schedule A

For a home office: Schedule C and Form 8829

For a rental property: Schedule E

Housing isn’t cheap, but the federal government wants to encourage people to become homeowners.

One easy way to do this? Allowing them to write off the cost of their mortgage interest from their taxes.

You can deduct the interest on the first $750,000 of your home loan ($375,000 if you’re married and filing separately.)

Writing off your mortgage interest if you have a home office

If you use a home office and own your home, your mortgage interest is both a personal and a business expense.

You’ll report the personal-use part of it on your Schedule A. The business-use part of it, though, goes on two forms:

  • Your Schedule C
  • Form 8829, which is used specifically for home office expenses

For more on how to figure out the business use of your home, check out our guide to the home office deduction.

Writing off loans for investment properties

A mortgage on your primary residence isn’t the only kind of home loan with tax-deductible interest. If you buy real estate and rent it out, you can write off a portion of that interest from your taxes. 

You’ll put it on your Schedule E, which reports income from real estate and other sources (like royalties and partnerships.)

Student loans

Where to write it off: Form 1040

The one bright side of student loans: the interest you pay on them is tax-deductible — at least up to a point. 

Those are the only kinds of interest you can use to reduce your taxes. For everything else, you’ll have to foot the bill yourself. That includes:

  • ✘ Personal purchases
  • ✘ Debt from medical expenses
  • ✘ Loans on cars you don’t drive for work

So go on — invest in your business. This is one area, at least, where the IRS will have your back.

Soo Lee, CPA

Soo Lee, CPA


Soo has over 10 years of experience at publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diverse industries, including manufacturing, wholesale and retail, construction, real estate development, banking, finance, and professional and legal consulting. At Pricewaterhouse Cooper, she worked with many foreign-owned companies and advised clients on a broad range of issues, including federal and state tax minimization, determining the optimal structure for new foreign investments, and restructuring and reorganization for existing operations.

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